Many car buyers have come to rely on a $7,500 federal tax credit on electric vehicles to soften the blow of their high prices. But those credits could disappear after President-elect Donald J. Trump takes office, leading to an almost immediate drop in sales of the cars and trucks.
Electric car sales could fall 27 percent if consumers lose the tax break, according to estimates published last week by two economics professors, Joseph Shapiro of the University of California, Berkeley, and Felix Tintelnot of Duke University. Registrations of electric models are on track to hit 1.2 million this year, and estimates are that there would be about 317,000 fewer registered annually without the credit.
Other countries that eliminated such subsidies have seen similar drops — in Germany, electric vehicle sales tumbled 27 percent in the first 10 months of the year, after the government last December abruptly canceled an incentive worth $4,900.
“You can’t make a vehicle $7,500 more expensive and sell more of them easily,” said Chris Harto, a senior policy analyst for Consumer Reports. “People are only willing to pay so much.”
The tax credits, which can be as high as $7,500 for new electric cars and plug-in hybrids, and up to $4,000 for used models, are a cornerstone of President Biden’s Inflation Reduction Act, a law meant to address climate change and spur domestic manufacturing. Since January, consumers who buy or lease eligible cars have driven home with $2 billion in credits on 300,000 cars, according to the Treasury Department.
New-car prices are flat in 2024, but have risen nearly 30 percent since the start of the pandemic. And the gap between battery-powered cars and internal combustion models remains stubbornly wide. Consumers paid $56,900 on average for an electric car in October, $9,000 more than for the average gasoline car or hybrid, according to Kelley Blue Book, though the tax credit often significantly reduced that gap.
Mr. Trump regularly attacked Mr. Biden’s policies on climate and electric cars on the campaign trail, and his transition team is exploring steps he could take to repeal or limit the credits. A complete repeal would require Congress to act. But Mr. Trump could also direct the Treasury to change tax rules in ways that limit how many cars qualify for credits.
Those efforts have the support of one of Mr. Trump’s biggest supporters, Elon Musk, the chief executive of Tesla, which makes roughly half of the electric vehicles sold in the United States. Mr. Musk has called for the elimination of all subsides for electric vehicles. He has also said the loss of the tax break would hurt Tesla less than it would other automakers.
But even Tesla would take a hit because the company’s two top-selling cars are eligible for the $7,500 credit. Losing the credit could further depress the company’s sales, which have been tepid this year because it has few new models to compete with electric cars from other automakers.
Tesla and the Trump transition team did not respond to requests for comment.
If the credits end, Mr. Harto said, some automakers might make up some of the difference by offering bigger discounts to sustain sales and keep their factories humming. Several automakers are already offering year-end deals, including monthly leases below $250 on models like the Hyundai Ioniq 5, Nissan Ariya and Kia Niro. Mr. Harto advises shoppers interested in such vehicles to buy one soon.
“If you’re really considering an E.V. over the next few years, there’s probably no better time than today,” he said.
Albert Gore III, the executive director of the Zero Emission Transportation Association, a trade group, said ending credits would instantly raise prices for the fastest-growing segment of the auto industry. Three of four electric cars sold in the United States are built domestically, by companies including Tesla, Ford Motor, General Motors, Hyundai, Rivian and Volkswagen.
“This is going to be inflationary on the entire car market, no doubt about it,” said Mr. Gore, whose father was the U.S. vice president from 1993 to 2001.
Mr. Harto said price increases could be a deal-killer for budget shoppers. Several affordable electric models — the kind many Americans have clamored for — have recently arrived in showrooms, with encouraging early sales. They include the Chevrolet Blazer sport utility vehicle and the mechanically related Honda Prologue, both built at a G.M. plant in Mexico. With both models eligible for a full $7,500 credit, the Blazer costs as little as $38,500 and the Prologue about $41,000. An electric Chevrolet Equinox costs $27,500 after the credit, on a par with similar gasoline vehicles.
Still, some analysts note that many electric cars are already ineligible for the tax credit.
Just 20 percent of electric car buyers claimed a tax credit in the first half of 2024, according to BloombergNEF, a research firm. Under the Inflation Reduction Act, cars are eligible for the credit only if they are assembled in North America and are powered by batteries that include materials from the United States or its trade allies. Only 13 models offer the full $7,500 credit through Dec. 31. Another eight are eligible for $3,750.
Buyers also have to earn incomes below $300,000 for couples and $150,000 for individuals.
Those restrictions do not apply if electric cars are leased. As a result, leases made up 79 percent of all electric-car transactions in dealerships in October, up from 16 percent in January, according to Edmunds. Those figures do not include brands, such as Tesla, Rivian and Lucid, that sell cars directly to consumers.
For people who are not ready to buy a new car, many formerly leased cars should enter the used market in coming years. They may make for tempting deals because battery-powered models have suffered sharp depreciation since Tesla started slashing prices last year.
Sales of electric cars have slowed in 2024, yet these cars have never been more popular: Americans bought a record 346,000 such models in the third quarter, according to Kelley Blue Book. Sales are up 9 percent in the first nine months of the year.
Supporters warn that killing the credits would blunt that momentum, with damaging effects for the environment, jobs and global competitiveness. The Environmental Defense Fund said companies had announced $126 billion in electric car and battery manufacturing investment since the passage of the Inflation Reduction Act in 2022, creating 108,000 jobs. By 2027, automakers will have built annual capacity for 5.8 million electric cars, enough to supply more than one in three new vehicles at current sales levels.
Opponents of credits say electric vehicles should compete with gasoline models without the help of the federal government. They note that many battery-powered cars are luxury models bought or leased by people who can afford the vehicles without tax breaks.
“I’ve driven them, and they are incredible,” Mr. Trump said about electric vehicles at a July campaign rally in Michigan, “but they’re not for everybody.”
Mr. Harto said electric cars would eventually have to stand on their own. But the Inflation Reduction Act was aimed at fostering a domestic ecosystem of cars, batteries, components and minerals before it is too late to catch up to China, which dominates the industry.
“Do we want to build those cars and batteries in the U.S., or just import them from China?” Mr. Harto said. “The incentives give automakers a cushion to scale up and figure it out.”
Even if Congress repeals the credits or Mr. Trump rewrites the rules, some industry executives expect a temporary jolt in sales, not a permanent decline. Jim Cain, a G.M. spokesman, said the automaker began investing in electric vehicle and battery factories years before the Inflation Reduction Act took effect, a strategy that is now paying dividends.
“The purest way to drive E.V. demand is with good-looking vehicles that hit all the buttons for consumers,” Mr. Cain said, “and we think we’ve got those pieces.”
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